Several websites offer borrowers and lenders a platform to work out a mutually acceptable rate of interest, which is mostly lower than what the high-street banks offer, writes Rahul Sharma.

Zap those banks. Zap your friends and family. There are enough strangers out there on the Internet now willing to lend you money at affordable interest rates and without all those extra hidden costs that big banks build into their loans.

Social lending might be well known to most of us — we keep tapping friends and relatives for money all the time — but in the cyber world it is still a new concept. It is gaining currency as people eager to make and save money race to websites that bring lenders and borrowers together.

Remember the last time you asked your father for a loan to buy your first motorcycle, or your mother for that first laptop? Well, technology now allows you to look beyond at those folks you never met who are looking to making their money work faster for them. These chaps don’t have the overheads a bank does — no infrastructure cost, no salary bill, and therefore no need for large margins on the money they deal in.

Websites such as www.zopa.com in England — which is touted as the world’s first lending and borrowing marketplace — offer borrowers and lenders a platform to work out a mutually acceptable rate of interest, which is mostly lower than what the high-street banks offer but more than what the money would earn if it lived in a bank.

Prosper (www.prosper.com) in the United States offers a similar service. There are copycats in Germany and Netherlands too, but I am yet to see them in India unless I am missing something.

People on these websites are those who have spare cash and are generally cautious in their investments, that is they might not want to play in stocks or currencies. The lending limits are regulated by the websites, which also run credit rating checks on those who register. The interesting part is that most of your money is not lent to one borrower; it is spread amongst several to avoid losses, just in case. The websites make money by charging small commissions on the transactions, more like matchmaking fees.

Kiva.org, however, has taken the whole social lending concept a step further by allowing lenders to give money to specific small-time entrepreneurs in developing countries. There are thousands of entrepreneurs listed on the website who can be lent anywhere from Rs 1,200 upwards for a period of six to 12 months. It’s the best of micro financing for the needy.

People from countries such as Azerbaijan, Indonesia, Cambodia and Samoa are looking for money to run their businesses. At the last count more than $12 million had been provided in loans by over 1,23,000 people, the website says.

But will social lending on the Internet eventually replace the big financial institutions with the bagful of extra costs? Looks doubtful for the time being. The loan amounts available through these social lending websites are still small and therefore easy to manage. The moment the business starts expanding, the extra hidden costs would begin to creep in, putting off lenders and borrowers alike.

Mom and Pop, therefore, still have a role to play in your lives if you want to buy that first motorcycle or that fancy laptop. Do love them and stay in touch!

That quirky side of the web …

A friend wrote how he bought a new pair of shoes recently and got entangled in its laces. “Everything was fine, but as I walked the lace knot would get undone every few meters,” he said. For a way out he hit Google and found Ian the Shoelace Fan. Ian runs a website on the fun, fashion and science of shoelaces.

It’s a good place to go if you want to lace shoes, tie shoelaces, stop shoelaces from coming undone, calculate shoelace lengths or read books about what holds that shoe together, drop by on http://www.fieggen.com/ shoelace/index.htm. Seems Ian has found his calling. It’s all very nice!

And by the way, Halo 3 notched up $300 million in sales in the first week.